Define Capitalism and describe its features. Evaluate unregulated Capitalism
Capitalism:
In the words of Gary M. Pickersgill and Joyce E. Pickersgill, the means of production, individual decision-making, and the use of the "The capitalist system is one characterised by the private ownership of market mechanism to carry out the decision of individual participants and facilitate the flow of goods and services in markets." "In a capitalist economy, households and firms are the basic production units. Each individual household is the owner of productive-factors. These factors include the household's own labour and may also include land, capital and raw materials. Each household sells the services of its factors, to the basic production unit, the firm. Private firms, organised by individuals, combine these productive factors to produce goods. The difference between revenues and costs constitutes profits, which then form the income of the firm's organizers. The income earned from the sale of a household's productive factors enables it to purchase the finished products of the firms'.
The capitalist system is also known as free enterprise economy and market economy.
Types of Capitalism:
The old, laissesz-faire capitalism, where government intervention in the economy is absent or negligible.
The modern, regulated or mixed capitalism, where there is a substantial amount of government intervention.
Principal Features:
Private Ownership:
In a capitalist economy, the factors of production-land, labour and capital - are privately owned, and production occurs at private initiative. Individuals have their property rights protected. They are usually free to use their property as they like as long as they do not infringe on the legal property rights of others. Private property, however, is protected, coritrolled and enforced by law.
Free Enterprise:
Free enterprise is an essential feature of the capitalist system. It is an extension of the concept of property rights. The term free enterprise implies that private firms are allowed to obtain resources, to organise production and to sell the resultant product in any way they choose. There will be no government or other artificial restrictions on the freedom and ability of the private individuals to carry out any business.
Consumer's Sovereignty:
Frederic Benham remarks: "Under capitalism, the consumer is the king". In the capitalist system consumers have complete freedom of choice of consumption. The production decisions in the free market economy are based on the consumer desires which are reflected in the demand pattern.
Freedom of Choice of Occupation:
In a capitalist economy, the individual is free to choose any occupation he is qualified for. This enables the worker to make the best possible bargain for his labour. The employers have to competitively bid for labour. However, freedom of occupational choice, does not mean guarantee of the job a worker opts for. The choice is practically limited by the extent of availability of the jobs.
Freedom to save and Invest:
The freedom to save is implied in the freedom to consumption, for savings depend on income and consumption. The term saving implies the sacrifice of consumption. As George Halm observes: "The right to save is supported by the right to transmit wealth, so that the choice between present and future consumption is not limited to the adult life of one person. The freedom to save, inherit and accumulate wealth is, therefore, a right which is perhaps more typical for the private enterprise system than is free choice of consumption and occupation".
The Market System:
The market mechanism is the key factor that regulates the capitalist economy. A market economy is one in which buyers and sellers express their opinions about how much they are willing to pay for or how much they demand of goods and services. Prices guide the purchase decisions of the consumers vote for or against the product by using their money. Thus, market prices reflecting the desires of millions of consumers, provide guidance to investors and other business persons. The market system, also called the price system, may be regarded as the organising force in a capitalist economy.
Compition :
Compition among sellers and buyers is an essential feature of an ideal capitalist system. it reduces market imperfections and associated problems. Therefore, according to G. M. Pickersgill and J. E. Pickersgill, in a free market economy, " a sufficient amount of competition is considered to be necessary if the whole production and distribution process is to be regulated by market forces. Competition is necessary in a private enterprise economy to keep initiative constantly on alert, to protect the consumer, and to maintain a sufficiently flexible price system".
Absence of a Central Plan:
Then the capitalist system is essentially characterised by the absence of a central plan. The activities of the numerous economic units in a capitalist system are not guided, co-ordinated or controlled by a central plan. Freedom of enterprise, occupation and property rights rule out the possibility of a central plan. Resource allocation and investment decisions are influenced by market forces rather than by the State.
Limited Role of Government :
Government intervention is necessary to ensure some of the essential features and smooth functioning of the capitalist system. It is necessary to define and protect property rights, ensure freedom of entry and exit, enforce contractual agreements among private entrepreneurs, ensure the satisfaction of certain community wants, etc. However, Government interference in the capitalist system is comparatively very limited.
Evalution Capitalism:
Modern capitalist economies are mixed or regulated systems which include the United States, Canada. Australia, the United Kingdom, France, Italy, the Federal Republic of Germany (West Gennany), Japan, Spain, New Zealand, the Netherlands, Belgium, Denmark, Sweden, Switzerland, Norway, etc.
Education of Capitalism:
Unregulated capitalism suffers from following drawbacks.
Profitability Bias:
Resource allocation under pure capitalism will not be optimum. As investment allocation is guided by the profitability criterion, sufficient investment may not take place in areas where profitability is low, however essential they may be. Profitability would be high in sectors which cater to the needs of the upper income strata. A large part of the resources of the nation may be utilized for the satisfaction of the needs of the well-to-do.
Concentration of Income and Wealth:
The right to property and freedom of enterprise are likely to lead to concentration of income and wealth and the widening of interpersonal income disparities.
Monopoly :
Though there will be free competition, in the real world the large firms are likely to gain an advantageous position which would eventually lead to monopolies.
Modern capitalist economies are regulated systems. Not only does the state regulate private enterprise but often sets up enterprises either to supplement the activities of private enterprise or to offer an effective competition to the private sector. There may be even state monopolies in certain sectors. The modern capitalist economies, are mixed economies regulated by the state. They are regarded as ideal systems by many people because they combine the positive aspects of the free enterprise system and state participation and regulation.